Besides cost, what is good in digital tax? 

Prices of some beer products have already been revised due to cost implications occasioned by digital tax stamps. PHOTO | FILE

What you need to know:

  • Whereas government is more interested in widening the tax base, digital tax stamps will among others, protect consumers against counterfeits. 

For close or more than a year now, the exchange between government, particularly Uganda Revenue Authority (URA) and manufacturers has been too loud. 

In fact it is getting louder than desired. Only last week, some manufacturers started to signal how far they will go  due to digital tax stamps. 

This has been a battle that has just refused to go away. Government and manufacturers are all pulling in different directions. 

Whereas manufacturers, and genuinely so, are concerned on the cost that comes with digital tax stamps, government insists, the conversation should be beyond cost. 
The focus, government argues, should be on the advantages therein, key among them curbing the increasing rate of counterfeits, balancing the tax equation and widening the tax base. 

While, most factors seem to work for consumers and manufacturers, government is more interested in how it can use the stamps to widen the tax base. 

In just its first year of implementation, according to a document prepared for URA in June, 84 spirits companies, nine wines and four beer firms and 42 water companies, which had been evading taxes, had been, for the first time in over a decade, brought into the taxable fold with compliance averaging at 40 per cent.

Whereas no new details have been provided to show progress since June, the document had indicated that compliance among water producers had grown from 16 per cent to 58 per cent while that of spirits and beer had grown from 9 per cent to 43. 

It also indicated that at least 9 per cent of wine producers had been brought into the tax fold, just from zero. 
Government, on September 9, 2019, started implementing digital tax stamps on spirits, water, beer, soda, wine and tobacco and has indicated, although it has not given timelines and sectors it is looking at, there will be more product additions soon. 

The key driver is basically to eliminate tax evasion and put a stop on under declaration of taxes. 
A commissioned research to look into the issue of under declaration, found that spirit, beer and water companies are the biggest culprits.
For instance, the research found that a number of companies had been under declaring production volumes while others were falsifying measurements.  

“Some beer manufacturers were declaring wrong measurements. For example, one beer company instead of declaring 375 millilitres was declaring 330 milliltres, to avoid paying the prescribed tax,” the research, which was conducted between September 2019 and June 2020 , says. 

However, it does not indicate how much government has been able to collect as a result of the apparent reduction in the under declarations. 

URA has for at least three weeks not been able to furnish Daily Monitor with details regarding revenue collected from digital tax stamps in the first year of implementation or how much it seeks to mobilise in the 2020/21 and subsequent financial years. 

However, recently Finance Minister Matia Kasaija indicated that digital tax stamps will, in the 2020/21 financial year, be a key driver in tax compliance.

Issue of cost  
Benefits aside. It is difficult to ignore the cost implication. And this has been the most controversial area and the elephant in the room. 

At the close of last month, Nile Breweries sent a notice to distributors, notifying them of an increase in product prices. Why? Because of digital tax stamps. 

“Following the announcement from the Ministry of Finance that manufacturers of excisable goods must pay for digital tax stamps from 1 July ... we regret to announce that we see no other option than to increase our pricing,” the notice read. 

This was bound to happen because manufacturers had always warned. And the most immediate was a movement in product prices northwards. 

Although it is only Nile Breweries that has so far revised product pricing, other companies told Daily Monitor they were still studying the situation with a bias to effect an increase. 

Onapito Ekomolit, the Nile Breweries corporate affairs director and chairman of Uganda Alcohol Industry Association, last week said they, for a long time, had been talking about the (effect of digital tax stamps) “and sadly, we had no choice but to increase prices”.

Uganda Alcohol Industry Association has been lobbying against digital tax stamps, rallying government not to  transfer another burden on manufacturers at a time when margins have been eaten into by Covid-19.

Until July, government had been paying the cost of digital tax stamps, including installation expenses  
However, just like earlier indicated, URA has previously argued that the price narrative is defeatist and seeks to fight a good policy.

Vincent Sseruma, the URA commissioner for corporate affairs, has previously said that whereas the cost remains a key departure point, the charges on the stamp is very minimal. 

“When those costs were determined, it was done in a way that they do not cause significant change on consumer price,” he said and noted that the charge on a mineral water bottle, for instance, was as low as Shs15, which, if it was to cause a price increase would not go beyond Shs30 .  

Not sufficient to increase prices   
Nile Breweries revised its product prices by between 5 per cent and 8 per cent.                                         

However, it is difficult to ascertain whether the new price margins are within or above the cost of digital tax stamps and attendant costs. 
                                      Therefore, some and URA have aruged that the digital stamp cost and other attendant costs, which, according to available details include Internet costs of $150 (Shs552,750) and at least Shs400,000 worth of monthly electricity chrages, there is no sufficient explanation, to raise product with high price margins.  

Whereas government concedes that digital tax stamps might influence prices, the increase must be minimal. 
For instance, according to details, a beer stamp is  gazetted at Shs55, which, if there is an increase in price must not go beyond Shs100, while that of water, which is at Shs15 may not go beyond Shs30.